Noting how the rate hike would see increases in monthly repayments for housing and other loans, Goh Lim Thye, a senior economics lecturer at Universiti Malaya, said it was key that the central bank look into whether these hikes had seen the desired reduction in inflationary pressures.
“Policymakers need to go down to the ground. It’s not as easy as sitting in front of computers and crunching numbers,” said Goh.
“They base their assumptions on past historical data, but that may not necessarily apply to existing situations based on geopolitical conflicts, supply chain problems and other issues.
“There has to be a post-mortem to check whether this policy is working or not.”
Goh also noted how inflation, as measured by the consumer price index (CPI), increased 2.8% in May, 3.4% in June, and 4.4% in July.
Earlier today, BNM raised the overnight policy rate by 25 basis points (bps) to 2.50%, its third consecutive rate hike.
In May, the central bank raised the OPR to 2% from 1.75%, reportedly the lowest on record, following a 25 bps cut in July 2020. In July, it raised the OPR by another 25 bps to 2.25%.
In a statement, it said that despite the continued easing in global supply chain conditions, inflationary pressures have remained high due to elevated commodity prices and tight labour markets.
It added that central banks are expected to continue adjusting their monetary policy settings to reduce inflationary pressures in light of the economic revival post Covid-19.
Another economist, Barjoyai Bardai of Universiti Tun Abdul Razak, said that the rate hikes would not reduce inflationary pressure, which was mostly due to Malaysia’s reliance on imports – which had increased due to the weakening ringgit.
Instead, he said that if BNM was looking to reduce liquidity in the market, it should increase commercial banks’ reserve requirements – meaning they would have less money for consumer and business loans.
“I think this instrument (OPR rate hike) is rather old fashioned and will not produce the required impact,” he added.
Shankaran Nambiar, a senior research fellow at the Malaysian Institute of Economic Research (MIER), said that while the economy was recovering reasonably well, it was not clear if a rate hike earlier in the year was the best option.
“But as the US continues to take an aggressive stance on its interest rate policy, it sort of drags the Malaysian authorities into taking policy actions that they might not want to take or that are not in their best interests,” he said.
“A rate hike, or a series of rate hikes, may not be what Malaysia needs. But in a globalised world, you do not want a situation where Malaysia’s interest rates diverge too far from those in the US,” he said, noting the ringgit’s current slide.
Yesterday, the ringgit opened at its lowest level versus the US dollar since the Asian financial crisis in 1998. At 9.01am, the local currency fell to 4.5010/4.5035 against the greenback. The currency traded mixed through the day, but closed even lower at 4.5020/5040.
The ringgit ended marginally higher against the US dollar today after BNM increased the OPR.